Tax Guide: Canadian Corporate Tax Preparation in Canada
After likely one of the strangest years in your life, it's suddenly tax season and you're bound to have some questions about proper preparation and filing. Canadian corporations have six months following fiscal year-end to file their tax returns, and with many of those deadlines arriving in June, the clock is ticking.
Corporate taxes are no simple matter. The list of items to remember is endless from preparation and documentation to the completion of tax credits and deductions. In this article, we’re going to explore the ins-and-outs
Understand Your Tax Type and Deadline
As an incorporated business in Canada, you’ll be required to file a T2 corporate income tax return form. Your return deadline is six months after your fiscal year-end, which for most businesses will land on December 31st. Your tax payment deadline will depend on your corporation type. For most, that payment deadline will be two months from the year-end date (the only exception being Canadian Controlled Private Corporations, which have their deadline set to three months).
Canadian corporations must file a tax return every year, no exception. Even if your corporation didn’t make any money in a fiscal year, it’s essential to file a T2 return to avoid late payment penalties. Note that provincial corporate taxes are administered jointly with the CRA and are included in your federal corporation tax return, with the exception of Quebec and Alberta. For example, if your corporation resides in Ontario, your T2 corporation tax return will include a calculation for federal and provincial taxes.
Decide on Your Preparation Approach
When it comes time to file your taxes, there are two approaches you can follow. The first is the do-it-yourself online method. This method allows you to organize and independently file your tax return using an online software. Your T2 will use a General Index of Financial Information (GIFI) code to file your return electronically. The GIFI is a system that assigns you a unique code that is commonly found on your core four financial statements. It’s what will allow most online tax software to import your material in an organized manner. Although time-consuming, the DIY approach helps gain a detailed understanding of your business finances and save you some money come tax time.
The second approach is to hire a professional accountant or tax preparer. Although it is more costly than the first option, expert support will allow for less errors and an increase in the total value of your return. The cost of professional services can be claimed as a business expense, so it makes sense for businesses to rely on expert support and ensure that there are no issues down the road.
Organize the Proper Documentation
The sooner you can get your corporate financials organized, the sooner you can breeze through tax season. You’ll need to keep a detailed record of all business receipts and invoices to ensure that you’re capable of backing up any tax deductions in the event of an audit. The easiest way to succeed in this effort is by keeping detailed books throughout the year. Having everything organized and documented will be a matter of reviewing and inputting.
If your corporation has had a difficult time keeping your books in order, it may be worth seeking the help of a professional bookkeeping service. They'll ensure that nothing goes amiss and prepare for anything the government can throw at you before, during, and after tax season.
Explore Available Tax Credits and Deductions
If things went according to plan, your business should have profited healthily during the last fiscal year. What that means, though, is a large tax bill may be waiting around the corner. Tax credits and deductions will be your way of avoiding as much of that sting as possible by reducing the balance owing come tax time.
A wide range of provincial and federal tax credits are available to businesses across the country, like the Scientific Research and Experiential Development Tax Incentive Program. On top of that, you also have access to a wide range of tax deductions that will allow you to reduce your total taxable income. Some of the more popular ones include:
- Capital Cost Allowance - The depreciation of business-related assets and equipment like machinery, tech hardware, vehicles, property, and other items needed for successful operations.
- Charitable Giving and Employee Gifts - Any philanthropic contributions made by the corporation can be used to lower your tax bill.
- Rent - Your corporation can deduct rent paid for the property needed to operate the business.
Tax time can be stressful. If you’re in the process of organizing your books or just need a hand with determining how to get your return started, the ParallelCFO team is here to help. Get in touch with us today!